Ryan Streeter
Like frogs in the proverbial kettle, a good many pundits, politicians, and activists behave as though we can fix our biggest domestic challenges incrementally, with as little fundamental reform as possible. We’ve seen this in the big, ongoing public battles over spending, health care, and the recent blow-up over government employees, unions, and state budgets.
In the end, we cannot resolve these three issues through tweaks at the margins. They represent something much more significant and consequential about American life. One might say that reform in these areas represents the great moral calling of the current generation.
Tyler Cowen’s e-book, The Great Stagnation, sheds light on why this is the case. The book has gotten a lot of well-deserved attention for his thesis that we are in the midst of a long season of economic stagnation owing to the dwindling returns to innovation in recent decades.
Less-discussed, but just as important, is his chapter on how American GDP is skewed by government spending, health care, and education. Cowen persuasively shows that the first two especially have come to dominate a much greater share of GDP in recent years without producing proportional gains in value or productivity. Education, likewise, has more than doubled its per pupil spending in inflation-adjusted dollars the past thirty years and grown to 6% of GDP without any real gains in value or results.
Together, without double counting, these three parts of our economy exceed 25% of GDP. Before our very eyes, a greater share of our economy is consumed by activity that produces low levels of economic value.
What is interesting is that these three issues track with the biggest debates we've been having about domestic policy in America:
Government spending: While the discretionary spending debate has occupied center stage, we all know that bringing government spending down will depend on fundamentally reforming entitlements. This issue will get increasing attention in coming months. As heated as the debate over trimming less than $100 billion from this year's budget has been, it's ultimately only about tweaking at the margins. The question remains whether we will pivot quickly enough to take on entitlements with the kind of reform they require.
Health care: Health care’s aggressive capture of greater shares of the U.S. economy has not come through the normal operations of an unfettered market, but through poorly structured government incentives in a clumsily designed third-party-payer system. Democrats cannot bring themselves to focus on what drives costs in the system. Only Republicans’ ideas, which have never been explained very well to the broader public, stand any chance of addressing the core causes of the explosive growth of the health sector. But they don't stand a chance of seeing the light of day until after 2012 at the soonest.
Education: The figures on education spending that Cowen cites, combined with what we have seen in Wisconsin and elsewhere, should be pretty clear evidence that what has really happened in the past generation is this: we have increased education as a portion of the economy by spending more on all kinds of things – unions’ demands being atop the list – that do nothing to create real value in the economy through improved student learning. Maintaining the status quo, or even tweaking it a bit, will do nothing reverse this trend. Only by continuing radical reforms such as merit pay for teachers and competition in the education marketplace can we ensure that whatever we spend produces the kinds of results that in turn benefit the wider economy.
We’ve been debating these three issues individually, unifying them in our discourse perhaps by the theme of how much government control we (don't) want over our lives. But Cowen’s conclusions take us one level deeper: taken together, these three issues represent a collective threat to America’s future that, absent fundamental reform, will keep us mired in stagnation for a long time.
Fundamental reform means changing the most essential aspect of a system. It’s always disruptive, always uncomfortable.
Because political environments rarely allow this kind of change quickly, we are in a more urgent situation than a lot of people would have us believe. You will hear pundits say, “We’ve actually got time to fix” this or that problem before we hit an all-out crisis (e.g., we’ve got a few years before we really have to change entitlement benefits). But we really don’t. When you factor in the de facto slowness of reform in a political context, everything related to these three big issues is urgent.
By and large, Democrats live a in fantasyland hoping we can maintain the status quo – whether in health care, education, or spending. One has to look hard for anyone regarded as a “Democratic reformer” these days.
At least a few Republicans behave as if they grasp the deep reality that Cowen is talking about. And it’s going to be up to them to build broad coalitions in and outside of Congress to get the political will we need.
The moral calling of this generation is to reverse the stagnation that has overtaken much of our economy and society. Politics and policy can play a positive role in this regard. It’s hard to be optimistic about much more than the fact that reform is possible, not likely, in the time we have. But it’s a start.
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